Fixed terms on the run: deposits in pesos are dismantled and the pressure is felt in the blue dollar

The Central Bank (BCRA) decided to keep interest rates unchanged despite the alarming inflation data that was recorded in August, which was 12.4% and took the fixed-term yield to negative territory. Thus, as the electoral contest approaches, a disarmament of placements in pesos is observed. to 30 days and sustained bailouts in local currency from Common Investment Funds (FCI).

Apparently, There are more and more cancellations of fixed terms that encourage the dollarization of portfolios, as well as the dismantling of positions in mutual funds and analysts estimate that this will last until well into Novemberwhen there is certainty about the electoral results.

As the economist Elena Alonso explains to Ambit, the drop in placements in pesos “is notable”, but there are also outflows in other instruments “such as bonds that adjust by CER.” This situation makes dollar instruments, such as dollar link securities, increasingly attractive due to their performance in a more stable currency. “This migration towards dollar assets is impacted by a notable increase in the exchange rate,” warns Alonso.

Experts estimate that this trend will continue in the coming weeks and months, at least until December or November, when certainties are obtained about the political and economic outlook, including who will be the winner and what measures will be implemented in that period. “This uncertainty will condition the dynamics of financial markets and investment strategies.“says Alonso.

Fixed terms in flight, exchange rate pressure and interest rate

The Economist Federico Glustein explains to this medium that, ““There is a 13% drop after PASO in fixed-term deposits in pesos from the private sector” and points out that this is due to a dollarization of portfolios that “deepens as the electoral period approaches.”

The latest official data reveal the origin of the push towards market dollarization and the search for coverage against the devaluation of the peso. The total stock of Traditional private fixed terms advanced just 3% in the last 30 days. In a period without the current uncertainty and tension, it should have achieved an increase of at least 9.7% (which is the performance they give per month). In addition, there have been considerable redemptions of investments placed in FCI, particularly short-term ones, indicating the preference for assets that leave the investor exposed to a possible devaluation of the peso.

Glustein warns that the consequences of this situation are visible and, in line with Alonso, points out that this may be one of the origin factors due to which the blue dollar skyrocketed, since many of the pesos that leave the fixed term They may be going to that market. “The consequences are obvious: acceleration of the exchange rate, of the circulation of pesos in the economy and therefore, of an inflation that is difficult to find an anchor,” he maintains.

This cocktail seems to leave few options for the Government and forces it, at least, to contemplate a possible adjustment in interest rates, something that is gaining strength, since the next inflation data, which is expected to be in double digits, will be known in few days (October 12) and would leave the 9.7% yield that the fixed term gives today negative (with a nominal annual rate of 118%).

And, just as it says Salvador Vitelli, head of research at Romano Group, the evolution of the fixed term shows a fall in real terms, “despite the fact that nominally it has not fallen significantly.” This is because inflation is eroding the balance considerably, especially with a negative rate.

Something that is also weighed down by the international context, since rates in the US are stuck, the super dollar is strengthening globally and putting downward pressure on emerging currencies, such as that of Argentina. Everything encourages the demand for financial dollars due to the growing need for liquidity.

Fixed term: few renewals after the electoral contest

“It is anticipated that fixed-term renewals will not be frequent,” says Vitelli, at least in the short term, due to the downward trend after the elections. For the analyst, investors are turning their weights towards other assets, such as the dollar, whose prices are increasing in this context. “Uncertainty has led to a demand for hedging in dollars, resulting in a decrease in demand for local money,” notes Vitelli.

So, Although an increase in the yield of the fixed term would seem a logical response in this context, it is not so logical for analysts. And, even if the Government decides to adjust interest rates in the coming days, Vitelli sees it as “very difficult” for people to choose to place money in fixed terms, unless there is strong capital control. Dollarization is underway and a higher rate seems not to be enough to stop it.

In summary, The drop in the demand for money is notable, evidencing a preference for more liquid and strong assets against inflation and devaluation, to the detriment of the peso.